Many experienced traders say that using technical indicators to trade forex currency pairs is a sound strategy compared to trading of equities and stock market products. Forex market has greater predictability as central banks of the countries actively intervene in market to keep their currency exchange rate on a optimum range. There can be many patterns and formations which help traders to find good trading opportunities and right stops or price targets.

How to Create an effective Technical Analysis System?

  1. Always stick to popular currency pairs: Popular pairs are interlinked and have established price ranges. But trading illiquid pairs can create high irregularities in price changes.
  2. Follow Japanese Yen and Swiss Franc: These two currencies are most prone to central bank interventions and thus are easiest to predict. Trading currency pairs including one of these currencies should also be a good option for a beginner trader.
  3. Stick to a handful of indicators: Simple indicators like moving averages and logarithmic returns have proved most effective in forex market. Using many indicators can create confusion and can slowdown the whole technical analysis mechanism.
  4. Use neural networks: Studies have shown that neural networks models are most effective technical analysis tools to identify obscure patterns in data; and are highly suited for forex market.

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